Desk ItemWN p
COUNCIL AGENDA REPORT
DATE: JUNE 16, 2016
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
MEETING DATE: 06/21/16
ITEM NO: 17
DESK ITEM
SUBJECT: RECEIVE THE REPORT AND RECOMMENDATIONS FROM THE AD HOC
CITIZEN COMMITTEE, AND DIRECT STAFF TO BRING FORWARD THE
FOLLOWING ITEMS FOR TOWN COUNCIL CONSIDERATION AT ITS AUGUST
2, 2016 MEETING:
A. PREPARE A DRAFT RESOLUTION TO PLACE A GENERAL PURPOSE,
HALF -CENT SALES TAX WITH A 25 -YEAR SUNSET ON THE NOVEMBER
2016 GENERAL ELECTION BALLOT.
B. PROVIDE A DRAFT FRAMEWORK FOR A CITIZENS OVERSIGHT
COMMITTEE TO ENSURE ALL TAX REVENUES FROM A POTENTIAL
REVENUE MEASURE ARE SPENT IN A MANNER CONSITENT WITH THE
BALLOT MEASURE.
C. PROPOSE A DRAFT LIST OF CAPTIAL IMPROVEMENT PROJECTS AS
POTENTIAL EXPENDITURES SHOULD THE MEASURE BE SUCCESSFUL.
REMARKS:
After the Staff Report was distributed on Thursday, June 16, 2016, the attached public comments were
received (Attachment 2).
Attachment 1 (Previously distributed with Staff Report on June 16 2016):
1. Los Gatos Community Priorities Survey Presentation (May 31, 2016)
Attachment 2 received with this Desk Item:
2. Public comments received after 11:00 a.m. Monday, June 20, 2016
PREPARED BY: CHRISTINA GILMORE
Assistant To The Town Manager
Reviewed by: Assistant Town Manager Town Attorney Finance
SACOUNCIL REPORTS\2016 \06- 21 -16\Ad Hoc Citizen Committce\Dmk Item - Ad Hoc Citizen Committee.doc
Subject: FW: Submission as a Desk Item for Council Meeting June 21
Attachments: June 212016 Meeting.docx
From: Lee Fagot [mailto:fagolCalgte.net]
Sent: Monday, June 20, 2016 4:09 PM
To: Town Manager
Cc: Clerk
Subject: Submission as a Desk Item for Council Meeting June 21
Dear Ms. Prevetti ,
Attached is a Desk Item for tomorrow's meeting I am submitting.
I will be attending and also plan to speak during the Public Comments Section regarding the Ad Hoc Committee
Report.
Thank you and regards,
Lee Fagot
Madam Mayor and Council Members June 21, 2016
Thank you for the opportunity to represent the townsfolk in this endeavor to find
additional revenue sources for Los Gatos Government. I appreciate the Council
reaching out to get this committee's perspective. And I also respect the work the
Town Staff put into providing support and information to the Committee.
While the conclusion to move forward with additional taxing to help fill in for the
budget deficits makes good fiscal sense, I believe, however, that this committee
should have also looked first at how we could also have been charged with
developing some efficiencies in current spending and looked strategically at how
we further reduce expenses. The currently published 2015/16 ADOPTED
BUDGET shows a $400k shortfall of revenue to expenses. Further, we are still
facing a more than $43M unfunded pension liabilities alone. This is more than
the original, approved total revenue projections for the Town for this year and is
on top of the almost 11 % annual contribution being made now to CALpers to just
keep the deficit from growing.
I therefore suggest that just as the Council solicited support from citizens to form
this Ad Hoc Citizens Committee to help with raising additional revenue for the
Town, this committee should also provide not just oversight to how these new
taxes are spent but in fact how our Town budget is managed. I would challenge
that the task is only partially completed — full budget oversight and input with help
from citizens should benefit the Town and be an additional resource for this
Council and Staff. I therefore suggest that this Ad Hoc Citizens Committee be
formally integrated with the Town's Budget Oversight Committee, which is made
up of staff, consultants and some Council members and currently does NOT
have any citizen input except challenges thru the 3 Minute Public Comments
section of the Budget Oversight Committee .
The fact that 192 Townsfolk spent more than 20 minutes on average answering a
recent phone survey says they see road repairs, parking, traffic and Downtown
beautification as critical issues.
Again, I appreciate the Council reaching out to the community to help with finding
ways to raise additional revenue for these projects, but I challenge that this is
only part of a full review of a budget and balance sheet. Lets move our work
from just being reactive to instead being more proactive. Lets bring additional
citizen resources and perspective to help with this very serious issue.
We are not keeping our infrastructure current, we are not managing our
resources fully and we are growing our deficits. Lets not just ask citizens and our
visitors to pay more. Lets see what we can also do to reduce expenses.
Respectfully,
Lee Fagot
Subject: FW: Unfunded Liabilities and How to Pay for Them
From: Jak VanNada [mailto:jvannadaCobgmail comj
Sent: Monday, June 20, 2016 9:44 PM
To: Council
Subject: Unfunded Liabilities and How to Pay for Them
Council - persons:
I will also be speaking to this at tomorrow night's meeting, but in essence, it is a way to pay for unfunded liabilities
through a 1/4% sales tax.
A group of us will be meeting with Steve Conway soon to discuss this in much more detail (we have a 12 page document
on the liabilities, so this is an abbreviated, abbreviated version.: -))
Jak
Jak Van Nada
UNFUNDED LIABILITIES HOW TO FUND THEM — JAK VANNADA — 6 -20 -16
1. The 3 citizens of the Citizens Ad Hoc Committee noted in the first meeting that we were
hesitant to raise taxes without first looking at costs.
2. As of June 30, 2014, the Unfunded Accrued Liabilities (UAL) have risen from $9 million
in 2003 to over $49 million in 2014, a rise of 544 %.
3. Even though CalPERS has had 20 year returns averaging over 7.5% in the past, our
unfunded liabilities have continued to rise to at least $49,000,000 and, we believe, will
go substantially higher after this June 301h
4. CalPERS reevaluates the status of the unfunded liabilities every two years. In 9 days
we will reach the end of the second year. Soon we are going to find out how they did for
the past two years. However, at this point, we know that for the fiscal year ending in
2015, their return was 2.4 %, or-5.1% short of their longterm investment goal. We also
know that 6 months into the second year, the return was at -.01%, or- 7.51% short of
their goal. We also know that up to June 17 of this year, the stock market was up only
1.33% This would suggest that we will have a significant upward bump to our unfunded
liabilities coming in addition to the bumps they now will have to impose to reduce the
overall unfunded liabilities across the state.
5. The increase in the UAL does three things
a. Increases required contributions
b. Reduces the funded percentage
c. Passes the debt built in the past 13 years forward to the next generation to pay.
6. Several changes to the pension plan have been made by the town and by CalPERS to
help communities reduce UAL over 20 years. These changes are, in our opinion, too
little, too late. The change to be made by CalPERS will increase the payments due from
us, very possibly for the next 20 years.
7. CalPERS will be raising our contribution level very soon. This will require that we raise
revenues and /or cut costs if we do not address these two items very soon. Personnel,
safety, and infrastructure expenditures are what will suffer.
8. These increases are treated as real debt In the private sector, and only recently has it
been required that local municipalities and the state record this as debt on their balance
sheets. This will get the attention of budget watchers. I don't know how or if it could
affect our credit rating. The only way to avoid cutting costs and raising revenues would
be for CalPERS to have extraordinary investment returns, and in the past 11 years that
hasn't happened. We're in the hole today by - $49,000,000. In another 9 days, it will be
worse.
9. We see two possible choices to fund the UAL:
a. Reduce operating costs and other spending
b. Increase tax revenues or find another funding source
10. The premise of this memo is that CalPERS has used an unrealistically high discount rate
of 7.5% causing them to have to invest in riskier stocks and bonds. Their current plan is
going to increase our liability payments for many years to come. The council needs to
take a leadership role now and bite the political bullet. We need to get the unfunded
dollars down to a level that doesn't dominate our budget. We CANNOT pass this onto
our children and grandchildren. We need to tax ourselves and very likely, cut costs.
11. 1 voted initially for a'' /z % sales tax for Los Gatos after much discussion, and I thought
the sales tax should go for improving the infrastructure of the town. With the information
we had at that time, it sounded like the bulk of the dollars generated if the VTA %% sales
tax proposal passed were going to San Jose and BART, and little was coming to us.
That is no longer appears to be the case.
42: It was subsequent to our last meeting of 5/31 where I "discovered" the unfunded
liabilities (UAL). With a more complete understanding of the UAL, I changed my opinion
from using tax revenues for infrastructure to paying down a rapidly growing debt. And,
as best I can tell, the VTA will partially or possibly fully fund much of the infrastructure
we require. We shouldn't compete with their measure for infrastructure dollars. With
more information, I have changed my opinion and think we should seek no more than '/4
% for our sales tax measure. Those additional tax receipts should be used to pay down
liabilities.
13. As I mentioned previously, I believe the Unfunded Accrued Liabilities will far exceed
$49,000,000 once the two year period ending 6/30/16 has been reevaluated by
CaIPERS.
14. If you take no action to cut costs or increase revenues, our unfunded liabilities will
continue to rise for years that will be considerably more than we owe now.
15. How is Los Gatos going to pay for this increased cost? If you don't tackle this now, the
problem will pass on to our kids, and then to their kids. We have kicked this can down
the road long enough.
16. Let me say that I am for regional planning and I think VTA tax initiative is needed for the
benefit of the whole bay area. But Los Gatos too has a big need to cut down our
unfunded liability debts.
17. The VTA requires a 2/3 vote. What if it does not pass? If we don't pass our own tax
measure, we will then need revenue for the infrastructure AND for the unfunded accrued
liabilities. We should not take that chance. This November may be the best chance in
years to come to pass our own sales tax initiative In two years, we could be at or near a
recession, making it impossible to pass any tax initiative. Additionally, in less than 10
years, if the north 40 retail comes on line, we will capture more taxes from outside of Los
Gatos and additionally, capture sales tax leakage dollars.
18. Sales tax partially comes from Los Gatos citizens; however, 30% of the tax dollars
generated come from visitors to this destination town.
19. 1 voted for a general tax to fund a recurring revenue source that would maintain the
quality of life in Los Gatos. A general tax is better because it is more likely to pass than
a specific tax. Additionally, if the VTA doesn't fund all that we need at certain times, we
will have the flexibility to use that money temporarily to fix a more urgent issue. You can
and should control the spending with a skilled oversight committee.
20. You might ask: "How does paying down a pension debt improve and /or maintain the
quality of life in Los Gatos ?"
21. Think what would happen if we defaulted and filed bankruptcy like Stockton and San
Bernardino? These two cities were permitted by law to reduce their pension liabilities
by 60 %, but both ended up paying off the pension debt in full. Had they reduced the
pensions, the outflow of disenfranchised employees would have gutted each city, and
there could have been ramifications in other cities that had similar liability problems.
Paying debts incurred is another way to maintain the quality of life.
ham: / /www. sacbee. com/ news / politics- aovernment/article3995709. html)
22. Granted, you cannot see it, feel it or touch it like you can infrastructure improvements.
But if the polls are correct, and the VTA lives up to their promises, the infrastructure will
be taken care of. We have to pay our own debts down, and now is the time to start that
process. A' /<% sales tax is a good start. I hope that you will see this as a tough
decision, but the right decision.